Patricia A. Leong Attorney at Law

Transcription

1 Patricia A. Leong Attorney at Law 3180 Crow Canyon Place, Suite 250 San Ramon, California Telephone (925) Facsimile (925) Website: ESTATE PLANNING What is estate planning? Is it just about dying? I feel that estate planning is planning in advance to take care of you and those you care about. The occasion you may plan toward is your death, but disability is another likelihood that can be planned for. You need to decide what your goals are in planning your estate and take steps to implement them. PROTECTION OF YOUR CHILDREN You can only name a guardian for your children in a legal will. If you do not have a will, and both you and your spouse were to die, the court will look around to see whom it thinks is best suited to raising your children. It may very well be someone you would disagree with. Your families may disagree among themselves who is best suited and initiate a costly court fight, part of which will be paid for with YOUR money. You may name two guardians for your child. Guardian of the Person - person who is to have physical custody of the child. Guardian of the Estate - person who will be investing and handling your money. You can name the same person for each job, or two different people. It's worth thinking it through. It is normal for the Guardian of the Estate to have to post a bond and to have to report back to the Court at regular intervals. The children are generally entitled to receive all such funds at the age of majority (18 in California). Use of a Trust You can direct the creation of a child s trust either in a will or a living trust, to be created upon your death. By use of such a child s trust, you can protect your children in the following ways: 2013 Patricia A. Leong, Attorney Page 1 of 5

2 -making sure the money is not handed over until you feel confident that they will be mature enough to handle it -protecting from creditors through the use of a spendthrift clause -allowing for advancements if the trustee feels there is a valid reason for it -holding the money until a college education is achieved PROTECTION OF YOUR MONEY There are a number of ways you can plan to protect your money. Most people's goals with relationship to their money are (1) not spending it unnecessarily on fees, (2) not giving it to Uncle Sam or our Governor, (3) keeping it private, (4) protecting it from bad handling by immature children or "spenders, and (5) having as much control as possible over their own use of it. Probate HOW DO ASSETS GET TO BENEFICIARIES? Probate is a court proceeding designed to be sure that rules are followed, that funds are protected, and that a clear transfer of title takes place, unencumbered by debts. An executor is appointed to be responsible for the assets. Unless certain conditions are met, the executor must have a bond, which is like an insurance policy to protect the principal. Probate takes a minimum of six months, and a more likely time period is 1-2 years. All information that is filed is public information. If a person dies intestate or with a will, estates in California must be probated if probate assets total more than $150, Probate Assets -real or personal property held as sole owner or tenants in common -proceeds of lawsuits Non Probate Assets -Joint Tenancy assets -Assets providing for a beneficiary Retirement plans Annuities Life Insurance Probate is expensive. California allows fees based on a percentage of gross value(before mortgages or debt) of the assets being probated. Probate Fees (each to attorney and executor) are: 4% of the first $100, % of the next $100, % of the next $800, % of the next $9,000, Example: If you have a $300, house being probated, the attorney and the executor would each get $9, This is regardless of whether you had a large mortgage or not, and only includes the house. These fees are the same regardlessness of how little actual work may be involved. Additionally, the attorney can put in for additional extraordinary fees, for such things as preparing tax returns or assisting in the sale of the house Patricia A. Leong, Attorney Page 2 of 5

3 Joint Tenancy Joint Tenancy is an easy way to get assets to beneficiaries, and avoid probate. However, it does have its drawbacks. -putting someone onto an asset as a Joint Tenant is making a gift to that person -you may unintentionally disinherit someone -upon your death, only your share of the property steps up to Fair Market Value -opens your assets up to the other person s liabilities GIFTING Most people are aware that you can give up to $14,000 per year free of any gift tax. You can also pay for medical expenses or education expenses in unlimited amounts without gift tax ramifications. USE OF A TRUST You can set up a trust to hold an asset, either during your lifetime, or in a will. Since the trust is a separate legal entity, your death or incapacity will not affect its existence. To the contrary, you can use such events to trigger actions to be taken by the trust. PROTECTING YOURSELF Advance Health Care Directive-You can appoint an agent to make decisions in your behalf when you are unable to do so. This is a legally binding document. It can also be used to give direction as to what criteria you consider important in making decisions, and such things as the use of pain killing drugs. Durable Power of Attorney for Property Management-You can grant an agent pretty much any powers you wish to grant. A power of attorney can also be limited to a single function. A power of attorney is only valid during your lifetime. Once you are dead, it cannot be used. Its use is mainly in handling your financial affairs during times of incapacity. Statutory Will WILLS AND TRUSTS This is a fill-in-the-blanks will that was prepared by the California Legislature. Thus, it has all the correct legal wording. It is excellent in simple situations. You can use it to do the following: make specific gifts, name an executor, name a guardian, require or waive bond. Just like an attested will, it requires 2 witnesses Patricia A. Leong, Attorney Page 3 of 5

4 Attested Will This is a completely typewritten will. It must be signed by at least 2 witnesses, and its use is very flexible. Notes written on it in handwriting are not valid. Among the things it can be used to accomplish are: -dispose of probate assets(note, a will cannot be used to dispose of JT assets or assets which have a designated beneficiary) -name a guardian for minor children -name executor -waive bond for executor and/or guardian -create a testamentary trust, usually for savings of estate taxes or protection of minor children Holographic Will This is a completely handwritten will. To be valid, it must indicate that it is a will, and must have the date and signature of the testator(the person whose will it is). You can do any of the things you can do in an attested will. This can be effective, but also dangerous, because you may not use the correct language, and the court s interpretation may have different results than you intend. If your probate assets total over $150,000.00, your assets will be probated whether or not you have a will. The will does not avoid probate. All it does is give instructions as to where you wish your assets to go. Trusts Revocable-can be changed or terminated Irrevocable-cannot be changed or terminated. In California, trusts are revocable unless the document specifically says otherwise. What is a trust? It is a legal entity you create to hold your assets for you. You give it directions on how to spend it during your lifetime, what to do in the case of your disability, and what is to be done in the case of your death. During your lifetime you are the trustee of your trust and you have complete control over the assets. How does it avoid probate? As stated, a trust survives your disability or death. If such an event occurs, the trust document has instructions on what to do. You will have decided on who is to be the successor trustee, and how the money is to be handled. You may have left instructions that the trust is to continue, so that the money can be used to care for your children until they are mature enough to handle it themselves. The instructions may make provisions for the funds to be divided up immediately. A separate trust can be set up for tax planning purposes. Any legal work that needs to be done is usually minimized, and can be paid for based on the work needed, not a statutory fee Patricia A. Leong, Attorney Page 4 of 5

5 What will happen to me if I set up a trust? Very little will change in your life, other than a feeling of relief. You will discuss, review and sign the needed documents. You will retitle your assets from your name to yourself as trustee. Example: from Patricia Leong to Patricia Leong, Trustee of the Patricia Leong Trust You will still have complete control over investing, transferring accounts, and spending your money. You can even take it out of the trust at any point in time. As long as you are a trustee, you will continue to file 1040 and 540 for your taxes. What if I get divorced, or have Separate Property? Each of the settlors retains the right to revoke the trust, which would be appropriate. If you have Separate Property, you can put it into the trust with the provision that it remain Separate. If the trust were revoked, the property would come back out of the trust as your Separate Property. ESTATE TAXES You should also be aware of how the Estate Tax may impact your beneficiaries. Your estate is the total of all your assets, including IRAs, 401(k), death benefits from life insurance you own on yourself, less liabilities. The estate tax rates go up to 40%. As of 2013, the amount exempt from Estate Tax is $5,250,000, which is indexed for inflation. With such a large impact on your estate, it is important to plan and be sure to take advantage of every opportunity to avoid or minimize the tax. WHAT DO I NEED TO DO? As with anything that affects you in such a major way, it is important to be informed. This is just an overview of these issues. Ask your advisors questions, and read more about these topics. I would be happy to discuss your personal situation, answer any questions, and explain any confusing areas. Please feel free to call for a complimentary consultation Patricia A. Leong, Attorney Page 5 of 5